But growing inflation pressures to erode real increases, which are set to be lower than in 2014

Australia, China, Hong Kong

HONG KONG, 27 August, 2014 – Salaries across Asia Pacific are set to rise an average 7% in 2015, up a fraction from 2014, with China and Vietnam the main drivers, but a pick-up in inflation across the region means that pay increases in real terms will drop slightly in the coming year, according to a survey conducted by professional services company Towers Watson (NYSE, NASDAQ:TW).

China (5.2%) and Vietnam (4.1%) will lead the way in East Asia for salary increases in 2015 after taking into account inflation, while Japan (0.6%) will see the smallest raises. Across the region, from factory floor to senior management, employees will have pay raises equal to or higher than last year in percentage terms, with the exception of Taiwan, where the rate of increase will drop from 2.8% to 1.7% after inflation. In real terms, however, increases will be lower for 12 of 20 Asia Pacific economies covered in the survey.

The survey, timed to coincide with companies’ budget planning process for 2015, looks at a range of industry sectors and job grades from factory shop floor to executive suite. The findings illustrate the challenge to businesses in the region as they seek to balance the effect of growing inflationary pressures and managing costs, while continuing to offer salaries sufficient to attract and retain skilled staff.

“We’re seeing a pick-up in economic growth in Asia Pacific in the coming year against a backdrop of declining unemployment, which will create inflationary pressures,” said Sambhav Rakyan, Data Services practice leader, Asia Pacific at Towers Watson. “The challenge for companies is to keep employees engaged and turnover down, while not getting caught up in a pay-inflation spiral. From our research1 we know that, whatever people say, salary is the number one driver for attracting and retaining highly skilled staff, so a fine balance needs to be found.”

Economic growth in Asia Pacific in the coming year is forecast to rise 4.8% from 4.7% in 20142, with the rate of unemployment dropping to 4.5% from 4.7%3. Inflation across the region is forecast to rise 4.3% in 2015, versus 3.9% this year.

In terms of overall increases – before inflation is factored in – India and Myanmar are also standouts for 2015. Vietnam is highest with 11%, followed by India at 10.8% and Myanmar 10%. Yet inflation erodes the real benefit in these countries to 4.1%, 3.5% and 3.3% respectively. China has an overall salary increase forecast of 8.3%, but this is supported by relatively low inflation expectations (3.1%).

Hong Kong and Singapore are both set for overall increases of 4.5% in 2015, unchanged from 2014. However, after inflation, Singaporean employees will see more of that increase. In real terms salaries will rise 0.9% and 2.2% respectively.

Pharmaceutical, Financial Services and High Tech Salary Increases Stand Out

The pharmaceutical sector will continue to have the highest salary increase in the region at an average of 6.7%. Vietnam (12%), India (11.5%) and China (8.9%) will see the highest pay increases in this sector.

“Asia’s ageing population, patent expiries, increasing demand and encouragement for genetics have continued to put pressure on companies to attract and retain talent, particularly for jobs such as in regulatory affairs, clinical strategy, project management and qualified researchers,” said Mr. Rakyan.

In the region’s two key financial centres, Hong Kong and Singapore, salaries are set to rise by more than last year: in Hong Kong up 5%, compared to 4.5% in 2014; and in Singapore up 4.5% in 2015 from 4.2% this year. Salaries in the sector in mainland China are expected to rise 8.5%, versus 7.9% last year.

“Compensation at financial institutions has become a major concern for governments and the general public as a consequence of the recent global financial crises,” said Mr. Rakyan. “Discussions have been raised to regulate bankers’ compensation, especially for those whose daily job tasks include risk taking that can have a significant financial impact on the bank.”

The region’s high-tech sector is expected to see raises on average of 6.6%, up from 6.3% in 2014. Across all job levels, salaries are expected to rise.

“It’s an indication that the high-tech sector is emerging from the cost pressures of the past with new-age technology companies wooing the top talent with high salaries, flexible and “cool” work environments. Retaining suitable talent becomes all the more important in light of reliance on innovation for maintaining competitive advantage in the market.”

“Noteworthy here is that only in China will pay increases in this sector be lower in 2015 [8%] from this year [8.3%], suggesting an oversupply of talent in this sector or that the sharp increases we’ve seen in recent years are beginning to slow down,” said Mr. Rakyan. “It also reflects the efforts of companies to move manufacturing and R&D deeper into China’s hinterland, such as Chengdu, Zhengzhou and other such cities, where salaries lag those of the eastern seaboard.”

Commenting on the overall findings, Mr. Rakyan said: “As the salary-increase budgets stabilize in the region, companies need to carefully evaluate where to spend their limited funds. Differentiating between your crucial skill talent, high potentials and average performers is becoming more essential than ever to ensure best use of your budget.”

“We believe that a well-defined employee value proposition (EVP) is increasingly important as cost pressures and the talent shortage become more acute. This EVP should articulate how an employer is unique, offers a great workplace, and why the company attracts and retains great people.”

About the Survey

The APAC Salary Budget Planning Report is compiled by Towers Watson’s Data Services Practice (TWDS). The survey was conducted in July 2014. Approximately 2,900 sets of responses were received from companies across 20 countries in the Asia-Pacific region. The report summarises the findings of Towers Watson’s annual survey on salary movement and reviews practices as a means of helping companies with their compensation planning for 2015. The latest Salary Budget Planning Report is available to purchase online.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management.